Crypto Mining Algorithms: Why They Matter and How They Work

If you are going to become a crypto enthusiast, you should dive into the deep end and understand the technical side of it. Understanding mining algorithms help you choose the best crypto-mining hardware based on efficiency, cost, and profitability. This article will dive into how crypto mining algorithms work and why they are important.


What is a Crypto Mining Algorithm?


To understand this, it is vital to know what an algorithm is and what mining is. An algorithm is a set of instructions or steps a computer follows to solve a mathematical problem. However, it is not only confined to computers. If you wanted to bake a cake, you would need to follow the steps outlined in a recipe. That recipe is like an algorithm.

On the other hand, mining is a name given to the process in which computers solve complex mathematical problems and receive rewards for getting the right answer first. It is more or less the same way physical mining is done –  a lot of work and resources are put into digging out the precious metals. Whoever finds ore first is the owner! In crypto mining, the reward is not precious metals, but cryptocurrencies.

Therefore, a mining algorithm is a set of instructions that guides the computer in solving a complex mathematical problem.


Why are Crypto Mining Algorithms Important?


Crypto mining algorithms are important because they determine whether your investment into mining cryptocurrencies will be bright or bleak. These algorithms indicate what mining equipment to buy, which mining hosting services to try, and ultimately which miners you can profit from. But here’s the nitty gritty.

Different mining algorithms require different hardware requirements. A suitable mining algorithm can help you achieve higher hash rates, lower energy consumption, and give satisfactory returns.

Some mining algorithms will favor ASICs, while others favor GPUs and CPUs. It is your responsibility to know which ones work well together. For instance, if you are going to mine bitcoin, buying an ASIC miner will do you much better than a GPU. 

There are platforms called mining pools that allow you to contribute computational power, and in return, they share with you a portion of the block reward they get after successfully mining a block. Understanding crypto mining algorithms will help you get hosted by the best crypto mining pools. You wouldn’t want to join an Ethereum Classic (ETC) mining pool while running a SHA256 hashing algorithm (for Bitcoin (BTC), would you?


How Crypto Mining Algorithms Work


Most people think crypto mining is complicated and do not want to dedicate time to understanding it. If they did, they would find out that it is pretty simple. Here is how mining algorithms work:

A blockchain is created with a finite number of ‘blocks’ that are simply records of the transactions on the network. When one computer finds the answer (hash) to the complex math problem (hash function) of Block 0, the computer is rewarded with X number of coins for the work done.

The hash is then recorded onto the next block’s header (Block 1) and acts as an identifier for that block. When Block 1 gets decrypted and rewards distributed, the hash from that Block (root hash) is combined from the hash gotten in Block 0 and the resulting hash is recorded onto the header of Block 2. And so on.

In that way, changing the hash of one block changes the hash of all the other blocks, invalidating the network (hacking the network). This is why it is commonly said ‘blockchains can’t be hacked.’


10 Popular Crypto Mining Algorithms


The type of crypto mining algorithm you choose determines which crypto you can mine. Here is a simple list of the top cryptocurrencies’ most popular hashing algorithms.

  • SHA-256 (Secure Hash Algorithm 256) – Best for mining Bitcoin (BTC) and Bitcoin Cash (BCH). It works well with ASIC miners but 
  • Scrypt – Best for mining Litecoin (LTC) and several other altcoins. It is ASIC-resistant and consumes a tremendous amount of memory.
  • Ethash – Best for mining Ethereum Classic (ETC) and Ethereum (ETH). It is resistant to ASIC miners but works well with GPU miners.
  • Equihash – Best for mining Zcash (ZCASH) and other cryptocurrencies like Komodo (KMD), Pirate (ARRR) and ZClassic. It is also ASIC-resistant and memory intensive.
  • X11 – Best for mining Dash (DASH). It is more energy efficient compared to other algorithms. The algorithm is a combination of 11 different cryptographic hash functions.
  • Cryptonight – Best for mining privacy-oriented cryptocurrencies like Monero (MNR), Bytecoin (BCN), and Fantomcoin (FTM).
  • Blake2b – Also known as BLAKE2, this algorithm is best for mining Siacoin (SIA) and works well with GPUs. It is optimized for 64-bit platforms (including ARMs).
  • Lyra2REv2 – Best for mining Vertcoin (VERT). It is most efficient when used with GPUs. It resists ASIC and field-Programmable Gate Array (FPGA) miners. It is a combination of 5 hashing algorithms.
  • NeoScrypt – This modified version of Scrypt consumes even more memory. It is best for mining Feathercoin and Phoenixcoin.
  • X16R – Best for mining RavenCoin (RVN) and is targeted toward decentralization by preventing immediate dominance by mining pools and future dominance by ASIC miners.


Final Thoughts


Understanding crypto mining algorithms provides invaluable insights into mining efficiency. If done right, the crypto mining experience can be an enjoyable one. However, if not considered, crypto mining can become one of your worst experiences and leave a significant dent in your wallet. The knowledge in this article will empower you to make informed decisions when pursuing crypto mining.